Davies pans 'unfair' finance firms

Thursday 10 April 2003 16:51 BST

THE head of the City watchdog has criticised the financial services industry for failing to treat customers fairly. Chairman of the Financial Services Authority Sir Howard Davies said he had been surprised by the level of mis-selling cases the FSA had encountered.

Speaking at the Association of British Insurers annual conference, he said making sure firms ensured products were suitable for the customers they were sold to was probably the key issue facing regulation during the coming months.

He said: 'Sections of the industry continue to pay too little regard to the basic principle of treating customers fairly. We have been regularly surprised over the last few years at the number of cases of mis-selling and unsuitable advice we have encountered.

'I would have thought, in my simple-minded way, that paying out over £11bn in compensation would have focused the minds of firms more than it evidently has on the need to be sure that their selling practices are complaint and ethical.'

Davies said there had been case after case where the risk associated with products had not been properly spelt out, where there had been financial promotions which seemed 'calculated to mislead', and of highly risky products sold extensively to consumers for which they were not suitable.

He said the FSA had shown that if genuinely simple and low risk products were devised, such as stakeholder pensions, it would adapt its regulatory regime.

But he added that many observers remained to be convinced that simple products, such as the Government's proposed suit of low-cost stakeholder style products, could be removed from regulation entirely.

He said: 'If firms do not pay sufficient regard to suitability, consumers are bound to be suspicious. This, in my view, is probably the key issue in financial regulation which we collectively need to resolve over the coming months.'

Davies also said urgent action was needed in the area of professional indemnity insurance, the cost of which has risen steeply for financial advisers recently. Part of the problem is that insurers are nervous about reviews into mis-selling, which they fear could trigger large compensation claims and could be applied retrospectively.

Davies said he thought the concerns arose out of a misunderstanding about the reviews, and added that the FSA planned to launch a discussion with the ABI and Association of Financial Advisers about them.

Davies is leaving the FSA in September to become chairman of the London School of Economics. He will be replaced by the head of energy regulator Ofgem Callum McCarthy.